Changes impacting Leave Loading and Superannuation Obligations

ATO Leave Loading

Changes impacting Leave Loading and Superannuation Obligations


The Australian Taxation Office (ATO) has recently updated the guidance on its website in relation to leave loading and superannuation guarantees. Whilst the changes do not change the ATO’s stated legal position, it provides further clarity in a space that has grown over time.

What is Leave loading?

Leaving loading was introduced in during the 1970s with the intention of compensating some workers from being unable to work overtime while on annual leave and therefore earn less money.  As the workforce, has evolved and more employment is covered under an award or agreement there has been increasing use of leave loading, however, the underlying purpose of the use of Leave Loading has been lost. 

What is the change?

The ATOs view is as noted in SGR 2009/2 is that leave loading forms part of ordinary times earnings unless it is referable to a “lost opportunity to work overtime.” This means that leave loading should form part of the superannuation guarantee contributions that are made by employers on behalf of employees unless leave loading is specifically paid due to the “lost ability to work overtime.”

The ATO’s default position moving forward will be that the leave loading is included for superannuation purposes unless it can be shown otherwise.  As such, demonstrating the purpose of the leave loading becomes more important.

The ATO have provided a significant concession to employers paying leave leading (where this is no documented proof).  The ATO have announced that they will not be employing compliance resources for historical periods in relation to employers that have determined that leave loading is not ordinary times earnings and there is a lack of evidence to demonstrate the purpose of the entitlement.  This position holds where:

  • The exclusion of the leave loading from ordinary times earnings was reasonable and it is stated that the annual leave loading was for a notional loss of opportunity to work overtime; and
  • there is no evidence that is less than 5 years old that suggests the entitlement was for something other than overtime.

Moving forwards, employers do need to ensure that their superannuation obligations are met and that they have the right paperwork in place going forward.  In practical terms this means that the ATO will accept that the leave loading is "demonstrably referable" to a lost opportunity to work overtime, if there is written evidence. This could be satisfied:

  • if the wording in the relevant instrument clarifies the reason for the entitlement; or
  • by other written evidence (eg a documented policy) that clarifies the reason for the entitlement, and reflects the mutual understanding of both parties to the agreement that gives rise to the entitlement.

Accordingly, to reflect the above employers will need to engage with the relevant employees and or their representatives to ensure that wording is updated or policies documented.

Should you require further information to the above or have any questions about how this may impact your business, please do not hesitate to contact your engagement partner on 02 9283 1666.


Article by David Prichard